Study: Four Michigan cities pay too much for electricity after signing 50-year contracts | Michigan Radio
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Study: Four Michigan cities pay too much for electricity after signing 50-year contracts

Oct 5, 2020

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Four Michigan cities may have made a financial mistake that will last decades.

Hillsdale, Clinton, Marshall, and Coldwater were among dozens of cities in nine states that signed 50-year contracts for electricity from a company called American Municipal Power, or AMP.

That electricity is now far more expensive than what the cities could obtain on the open market, according to a study by David Schlissel of the Institute for Energy Economics and Financial Analysis.

Schlissel says AMP over-promised and under-delivered on the price and timeline for two projects - a new coal-burning plant and a new combined hydroelectric plant. Both cost more and took longer to build than anticipated, and in the case of the hydroelectric plant, its output was dramatically lower than projected, although its performance has improved over time.

"As it's turned out and as we show in our report, it (signing the contracts) was a disastrous idea," says Schlissel.

He says when cities signed the contracts in 2007, it may not have been apparent how much cheap natural gas and renewables would bring down the cost of electricity, although his group and others urged a number of cities not to sign the contracts.

Now, some communities "aren't going to be able to take advantage of the lower electricity prices, because they're stuck in these contracts," he says.

Hillsdale says it gets 13% of its electricity from AMP; Coldwater, 21.7%; and Marshall, 26.7%. Clinton did not respond to a request from Michigan Radio for the information.

Coldwater, Hillsdale, and Marshall issued nearly identical statements in response to Michigan Radio's inquiry.

The cities say they made the decision to enter into the contracts "after due consideration," based upon "then-current and projected power supply costs and volatility, along with sustainability goals. The City takes seriously its contractual commitments and continues to find value in the joint action of municipal utilities represented by these Power Sales Contracts. We are not seeking to terminate them."

For its part, AMP called the study "misleading, "inaccurate," and "rhetoric unsuccessfully pitched 10 years ago."

From its statement:

AMP Members justifiably consider more than cost alone when weighing the decision whether to participate in long-term power supply projects. With respect to cost, when AMP Members made the decision to participate in these projects, then-current wholesale energy prices and future market projections were much higher than they are today.  Like any market, the wholesale electric market is dynamic and will continue to fluctuate over time. Moreover, those familiar with energy markets will note that comparing the cost of long-term power-generation assets to the short-term hourly market, as the IEEFA has done, is not an apples to apples comparison. AMP remains confident in these projects as long-term, reliable resources to balance our Members’ diverse power supply portfolio for years to come.